Financing your flat Part (1)

Financial Planning

Step-By-Step Guide

The ABCs of Financial Planning

Shopping for a home can be a very exciting time. But before you begin evaluating your housing options, doing your sums first can save you problems later on.

We have put together some pointers to help you with your financial planning. Click on the ABCs of financial planning to find out more:

    

STEP 1: ABILITY TO PAY

How much can I afford to pay? In most instances, you will have to take a housing loan to finance your purchase. For most people, this could be the largest financial commitment of their lives. To take a housing loan, you must have: Sufficient income to qualify for a loan. Steady income to pay back the housing loan with interest over 20 to 30 years. Before you make any decision on what type of flat you like to buy, you need to know first how much you can afford to pay. A simple way to find out is to track how much you earn (income) and how much you spend (expenses) in a month. After comparing your expenses against your income, you will now have a clearer picture of just how much you have left over to finance the payment for your new home. You can then decide on the flat that best meets your financial situation and family needs.

Read the information below to help you work out a realistic budget:

Your Income	Your monthly income is your: employment income; or trade income; or other sources of income When working out your current and future income, it’s safer to stay on the conservative side. As even if you now have a stable source of income, there may be changes that affect your income flow eg: changes such as a job change, changes leaving one spouse to be the sole breadwinner, etc. income fluctuations if part of your income comes from sales commission or other less stable sources. You should set aside a sum to take care of such contingencies.
Your Expenses	Apart from your daily expenses such as food and transport, you are likely to have other expenses that you need to include when you total up your expenses such as: supporting children, aged parents etc paying monthly debts eg credit card bills, etc. saving for future needs eg children's tertiary education, retirement saving for a rainy day eg emergencies, economic downturn. You will also need to consider the other monthly housing related expenses such as: Monthly cash payment for housing loan instalment (over-and-above your monthly CPF ordinary account contribution) Monthly service & conservancy (sc/cc) Electricity, water & telephone bill Insurance Renovation loans, etc
Cash Flow Planner	If your monthly contribution to CPF Ordinary Account is not enough to pay for the loan instalment, use a cash flow planner. It will help you to calculate how much you have left for housing after deducting your monthly expenses from your monthly income.

Should I buy the flat now or later?

Timing your purchase is also important. Consider carefully whether you can afford to pay the cash deposit amount and the monthly instalment of the housing loan without these becoming a financial burden.

In many instances, it may be better to be cautious and stay put where you are or to rent a flat first until you have built up enough to afford a home of your own.

Most popular related info…

• Step 2 : Budget - What are my resources
• Step 3: Credit - What factors determine my loan

STEP 2: BUDGET

What are my resources? Now that you have a better idea of just how much you can afford for your new flat (Step 1), next is to work out an estimated budget. This is an important step before committing to a purchase – knowing exactly what you have to pay for in buying a home. The following pages will guide you through this budgeting process.

To calculate how much you have for your flat purchase, gather information on the individual items that make up your total budget: 

CPF Housing Grant:
You can check on your eligibility for the amount of CPF housing grants that you may be eligible for, when buying a new flat or resale flat.

Maximum Loan Amount is:
You can check on our Maximum Loan Enquiry to estimate the maximum loan amount you can borrow.

Downpayment

All HDB flat buyers have to pay 10% of the purchase price of the flat as downpayment. If you are taking an HDB loan, you can use your CPF savings to pay the 10% downpayment. If your CPF savings are not enough, you will have to pay the balance in cash. For a bank loan, you need to check with the bank on the cash downpayment required.

Cash

(i)	Upfront
	If your eligible loan amount and CPF savings are not enough to pay for the flat, you will need to pay cash upfront before completing the purchase. If you are buying a resale flat at a purchase price higher than the flat’s Market Value (MV), you will also need to pay the amount above the MV in cash, commonly known as the Cash-Over-Valuation (COV).
(ii)	Monthly
	If your monthly CPF contribution is not enough for the mortgage repayment, you have to budget for monthly cash payment.
(iii)	Instalments
	You will need to check with the CPF Board at www.cpf.gov.sg on the Valuation Limit and CPF Withdrawal Limit if you are buying the flat using CPF savings and monthly CPF contributions. This is because if these limits (ie Valuation Limit and CPF Withdrawal Limit) are reached, you will have to pay your loan instalments with cash.

You can make use of our e-Services to work out an estimated financial plan for the flat you intend to buy from HDB. The financial planners will show you approximate figures on eligible loan amount, monthly instalment, stamp fees, conveyancing fees etc.

Resale Financial Plan Sales Financial Plan SERS Financial Plan DBSS Financial Plan

Important points to note before you work out your budget

How expensive a home you can afford to buy:-

• is related to how much money you can borrow and how much savings you have and how much monthly instalment you can comfortably afford.

How much loan you can borrow:-

• is determined by the lending criteria based on buyer’s age, income and financial standing (credit assessment).

It is important to obtain your housing loan assessment and eligibility in advance from HDB or the banks.

The following useful links give you market information such as current flat prices and the locations of the new flats. They help you make an informed decision about buying an HDB flat:-

• Resale Flat Prices
• SISV link & check availability
• Sales launch of new HDB flats

Most popular related info…

• Step 1: Ability to Pay - How much can I afford?
• Step 3: Credit - What factors determine my loan?

STEP 3: CREDIT

What factors determine my loan? Having worked out estimated budget (Step 2), you must make sure you can secure financing before you commit to the flat purchase. Housing loans are long-term and repayment will be in monthly instalments that includes not only the amount you borrow but the interest on the loan. Borrow only what you need and can afford to pay back monthly based on your income after setting aside enough funds for your monthly living expenses as well as emergencies.

The amount of housing loan that you can borrow will depend on :

• your age; and
• your monthly income

You will have to go through a credit assessment to determine your financial standing and the maximum loan amount you can borrow.

To obtain an HDB loan, you would have to apply for an HDB Loan Eligibility (HLE) Letter. Find out how to apply for a HLE letter.

The maximum loan you can borrow is determined by:

• the repayment period that you wish to take,
• the loan interest rate
• the percentage of your income that is spent on debt repayment, and
• the loan ceiling (as determined by the financial institutions).

You can obtain financing advice from:

• the HDB (for HDB loans); or
• banks / financial institutions for commercial loans.

Additional Tips On Borrowing

Do not over-stretch your budget It may be tempting to borrow as much as possible when the initial cost is manageable, but you could get into financial difficulties if you can't keep up your repayments. Live within your means and don’t over-stretch your budget.	Budget for increased costs in future Do not borrow the maximum you can afford now. Give some allowance for interest rates rise or CPF contribution rate changes in future. Contributions to CPF Ordinary Account decreases as you age. You may need to use more cash for future instalments.
Choose a shorter repayment period The longer the repayment period means: you have to pay more interest; and your outstanding loan is reducing at a slower rate every year. Hence it will be more financially prudent to choose a shorter loan repayment period.	You can afford your mortgage now, but what if.... You may be able to afford your mortgage today, but what happens if your income falls because of unforeseen situations such as:- retrenchment or pay-cut; business failure; need to stop work to look after a dependent; prolonged illness; etc

You can check here for more details on HDB Housing Loan & Bank Housing Loan.

Most popular related info…

• Step 1: Ability to pay - How much can I afford?
• Step 2: Budget - What are my resources?

Here you will find quick tips on good financial planning for your HDB home purchase.
Click on the poster for more information. 


For a detailed step-by-step guide on planning your finances for a flat purchase, please click here.


Ref:hdb.gov